New Delhi: Reduction in tax rate on domestic coal will provide a relief in the cost of power generation even after accounting for an increase in capital cost due to higher tax rates in boiler, turbine, generator segment, research and ratings agency ICRA said today.

The GST Council earlier this month placed domestic coal under the 5 per cent tax slab under the Goods and Services Tax (GST) while imported coal will continue to attract basic customs duty (BCD).

“It is estimated to provide relief in variable cost of generation by about 3-4 paise per unit in case of domestic coal. However, the variable cost of generation for imported coal generators would increase by 7 paise per unit,” the report said.

Given that the tax slab for coal varied from 11 to 12 per cent, it will lead to a positive impact for domestic coal users and a negative for imported coal users according to ICRA. On the other hand, for the wind energy sector, the impact of GST is marginally negative due to increase in capital cost -- higher tax rates in wind turbine generator—as the wind energy sector has been availing various concessional rates and tax exemptions, the report added.

According to ICRA, there will be a marginally negative impact on Boiler, turbine and generator equipment for thermalpower projects for which GST would be applicable at the rate of 18 per cent. “Overall impact including for balance of plant equipment and GST on service component is estimated to increase the capital cost for imported BTG based projects by 2 per cent,” the report said.

As per the government’s notification, BCD would also continue for imported components. ICRA report stated its impact would vary depending on the Value Added Tax (VAT) rate applicable in a state and the mix of imported equipment.

“To save the environment and to fight climate change, my government has planned a major campaign. By 2022, we want to generate 175 GW of renewable energy. In the last three years, we have already achieved 60 GW or around one-third of this target,” he said.